Since the 1930s, the government has regulated the price of milk based on dairy farmers' distance from Eau Claire, Wis. A federal judge has now tossed out the system, and his ruling could eventually bring lower prices to consumers far from dairyland.
U.S. District Judge David Doty of Minneapolis ordered the Agriculture Department not to enforce most of the 32 fluid milk marketing orders because he said the system has "no rational connection" to supply and demand in most of the country.
"This is a major milestone in the battle for a more equitable milk pricing system," said Sen. Russell Feingold, D-Wis.
The Agriculture Department planned to seek an immediate stay in the ruling to "avoid chaos" in the nation's milk markets, where some handlers were already refusing to pay government-set prices, agency spokesman Tom Amontree said Thursday.
But he said the request for a stay would not challenge the merits of Doty's decision and added that the ruling is likely to have far-reaching impact because by law the USDA must adopt a new pricing system by January 1999.
"We believe the court's ruling could have a profound effect on how USDA responds to the congressional mandate to reform milk marketing orders," Amontree said.
Sen. Patrick Leahy, D-Vt., called the decision a "runaway ruling" that could jeopardize the income of dairy farmers outside the Upper Midwest by effectively creating a single milk price.
"A flat pricing system, which this decision would impose, is flat-out wrong," Leahy said.
Doty's decision came in a lawsuit filed in 1990 by the Minnesota Milk Producers challenging a system created 60 years ago to ensure steady supplies of fresh milk nationwide and stable prices for farmers and consumers.
The main component bases the price paid to farmers on their distance from Eau Claire. As the nation's top-producing dairy region, the Upper Midwest once shipped its surplus milk to areas that didn't produce enough. The so-called "distance differential" was meant to cover transportation costs.
Over the decades, however, most regions have developed sufficient dairy capacity to produce their own milk, in some places even surpluses. In practice, this means higher milk prices for farmers and consumers far from Wisconsin and lower for those in the Upper Midwest.
Tom Cox, a University of Wisconsin agricultural economist, said that without milk marketing orders, the wholesale price would fall in many parts of the country: the Southeast, Southwest, Appalachia and parts of the Northeast.
In Florida, the wholesale price of milk could drop by about 26 cents a gallon. But as wholesale prices dropped in some places, the price paid to farmers in Wisconsin and Minnesota would likely rise.
Possible changes in retail milk prices are difficult to project because of other factors such as local competition between grocery stores, he said.